Ready to buy your first car but feel completely lost on financing?
You’re in good company, over 80% of new cars were financed in 2024. Financing options are plentiful and geared to first time buyers like you.
The problem is…
Most walk into dealerships with little to no idea what their financing options are. They then get slapped with higher interest rates, and make payments they can’t comfortably afford.
No need to fall into that trap, let’s take a look at what financing options are available to first time buyers.
In this guide you will learn:
- Why First-Time Buyers Need to Understand Financing
- The Different Types of Car Financing Available
- How Credit Scores Impact Your Financing Options
- Bank vs Dealership Financing: Which Is Better?
- How to Get the Best Interest Rates
- Common Financing Mistakes to Avoid
Why First-Time Buyers Need to Understand Financing
Let’s start with something you might not expect…
The fact that 68.8% of retail vehicle financing was provided to borrowers with credit scores of 661 and higher. If you’re a first-time buyer that’s fair credit and not much of a credit history, you need to be really smart about how you approach financing.
Not having your ducks in a row could cost you thousands of dollars unnecessarily. The average car payment for new vehicles in 2025 was $745 per month, and the rate for first-time buyers can be even higher if they don’t comparison shop.
Here’s a not so fun fact:
A 2% difference in interest rates on an average car loan costs you over $2,000 more in interest over the life of the loan. That’s a big chunk of change that could be building your emergency fund, killing some high interest credit card debt, or investing for your future.
First time buyers need to understand that when they visit a Subaru dealer, they can get a good understanding of financing while also shopping around for reliable, affordable cars that hold their value really well. Many dealerships have worked with several lenders to secure good rates for first time buyers.
The Different Types of Car Financing Available
Let’s break down the main options…
Bank and Credit Union Loans
Credit unions and other traditional lenders have some of the most competitive rates available. They can be even better if you’re an existing customer.
Benefits:
- Lower interest than dealership financing
- No push to buy a vehicle from that specific dealer
- Simple, straightforward terms
Dealership Financing
Dealerships are connected with a large number of lenders and will submit your application to them in the background. The good news is they’re all competing to offer you the best financing.
Here’s how they work:
Dealer submits your application to several lenders then chooses to present you with the best offer. Dealers can also make money by adding a financing markup.
Manufacturer Financing
Manufacturer financing can be really attractive because of special deals they offer from time to time. If you’ve done your homework on different makes and models, you’ll know which manufacturers currently have offers. 0% APR is a popular promotion and a great way to save money.
Online Lenders
Online only lenders have really hit their stride. Since they’ve never had physical branches to manage they can keep their overhead low, and pass the savings onto customers. Online lenders are fast to provide pre-approval and often compete on the best interest rates.
How Credit Scores Impact Your Financing Options
Your credit score is by far the single biggest determining factor in what interest rate you qualify for.
See what the interest rates look like:
- Excellent credit (781-850): ~5.25% average
- Good credit (661-780): 6-8% average
- Fair credit (601-660): 10-15% average
- Poor credit (500-600): 15+% average
Best part?
Even if your credit score is less than perfect, you still have options. Some lenders specialise in working with first time buyers.
The key is to remember that your credit score isn’t set in stone, it’s your negotiating power. The higher your score, the more you can work with.
Bank vs Dealership Financing: Which Is Better?
This is the big question first time buyers ask themselves…
Truth be told: Both can work in your favour, you just need to do your research.
Bank Financing Advantages
- Tend to have lower rates
- No dealer markup
- Makes you a cash buyer at dealership
- Gives you more negotiating power
Dealership Financing Advantages
- Convenience and speed
- Incentives offered by manufacturer
- One-stop-shop for buying and financing
- Can sometimes work with your credit when banks can’t
Recommendation: Get pre-approved with a bank or credit union first, it will give you a baseline to work with when it comes to dealer offers. If they can beat your pre-approved rate then great, if not you’re already set up to finance your car.
How to Get the Best Interest Rates
Getting a great interest rate is a goal you want to work towards…
Here’s some helpful tips.
Do this before you shop
Improve your credit: Pay all bills on time, keep credit card balances low, and don’t open any new credit cards before shopping.
Save for a down payment: Even $1,000-$2,000 can help lower payment and show lender you’re serious.
Organise your documents: Pay stubs, bank statements, employment verification. Makes the process quicker.
Do this during the shopping process
Shop around: Apply with multiple lenders in a 14 day window. Credit scoring models treat multiple auto loan inquiries as a single inquiry.
Consider shorter terms: 18.9% of borrowers pay more than $1,000 in monthly payments, but shorter loans = less interest overall.
Don’t let low monthly payment be your only focus: Dealers love to ask the question “what monthly payment are you looking for?” Instead, negotiate the all in price first.
Common Financing Mistakes to Avoid
Mistakes commonly made by first time buyers…
Mistake #1: Not getting pre-approved
Showing up at a dealership without any pre-approval is like going grocery shopping when you’re hungry. You’ll end up paying more than you intended to.
Mistake #2: Focusing only on monthly payments
A low monthly payment will usually come with a longer loan term and more interest paid over that time. Those $300 per month payments might look good on paper but they might as well be $300 per month for 84 months.
Mistake #3: Not reading the fine print
Extended warranties, gap insurance, protection plans. They can all add thousands to your loan. Some are worth it, many aren’t. Read all terms before signing.
Mistake #4: Taking the first offer
Always be willing to negotiate. On the car price, trade in, even the financing terms. Chances are there is always a little room to move.
Mistake #5: Not considering used cars
New cars depreciate like crazy. A quality used car can save you thousands while still giving you years of reliable transportation.
Wrapping Up
It’s important to understand your car financing options as a first-time buyer. Understanding all that goes into it is not just how to get approved, but how to get the best deal.
Keep these points in mind:
- Shop around with multiple lenders before setting foot at a dealership
- Credit scores are important but not everything
- Shorter loan terms will save you money over the long term
- Don’t get caught up on monthly payments being too high
- Read all of the terms and conditions before signing
The car buying process doesn’t have to be an anxiety filled experience. If you prepare, and educate yourself on financing options that best suit your budget, you’ll walk away with a deal you can be happy with.
Start by pulling your credit score, saving for a down payment, and getting pre-approved with a bank. Once you have the above three steps done you’ll shop with confidence.
